Toyota Was Dubbed a Doddering Octogenarian When It Refused To Budge Toward EVs and Now Its Dealers Just Captured 29 Percent of the Industry’s Total New Car Gross Margin

The author does not provide investment advice and does not hold any positions in the mentioned stocks.

Despite the challenging demand environment and shrinking margins faced by its competitors, including Tesla, the former king of the auto space, Toyota’s hybrids-first strategy has proven to be a massive success, showing that going against the herd can pay off significantly.

Cox Automotive Analysis: Toyota Dominates Online Shopper Interest, Low Days’ Supply, and Healthy Transaction Prices in Competitive Segment

According to Cox Automotive’s recently published findings on the US auto market, they highlighted some intriguing observations:

“Toyota and Lexus dealers captured 29% of the industry’s total new car gross margin in February, despite their combined dealer network representing only 9% of the nation’s dealerships.”

In simpler terms, even though Toyota and Lexus dealerships make up a small portion of all dealerships in the US, they earned a significant 29 cents out of every $1 made from the sale of new cars in February.

Here’s how profitable Toyota is right now:

In February, Toyota and Lexus dealerships captured 29% of the car industry’s *total* new-vehicle gross margin.

Basically, if the industry made a total of $1 on all new cars sold in February—Toyota earned 29 cents of that.

Here’s the… pic.twitter.com/zJSRU7qeaq

— Car Dealership Guy (@GuyDealership) April 3, 2024

The report lists several factors that have contributed to Toyota’s successful takeover in a sense:

1. Toyota has established a trustworthy relationship with its dealers, even going as far as seeking input from them on monthly production levels. This collaboration allows for efficient supply and demand alignment, ultimately maximizing the dealers’ margins.
2. Toyota’s focus on producing hybrids has resulted in significant success, as the company ranked second only to Tesla in terms of total emissions credits sold in 2023.
3. In 2023, Toyota once again ranked first in the J.D. Power Automotive Brand Loyalty study for the second consecutive year.
4. Currently, two of the most valuable franchises in the industry are Toyota and Lexus dealerships.

Toyota and Tesla: A David vs. Goliath Comparison

In the first nine months of its fiscal year 2024, Toyota sold a total of 2.8 million electrified vehicles, with the vast majority consisting of hybrids.

In comparison, Toyota’s forward P/S ratio is only 0.01, while Tesla, who sold 1.81 million EVs in 2023, currently has a forward P/S ratio of 4.79 according to stockanalysis.com.

As we observed earlier this week, Tesla has recently experienced its first quarter of negative year-over-year growth in deliveries since the height of the pandemic in Q2 2020. As demand continues to decline despite previous price reductions, Tesla has implemented a new strategy in China to maintain resale values by offering to repurchase vehicles at 45 percent of the invoice price within three years. Additionally, the company is now providing zero-interest car financing for Chinese buyers of the Model 3 and Model Y in an effort to boost sales.

Despite the challenges presented by the Chinese market, Tesla faces a wide range of competitors. Xiaomi plans to challenge Tesla’s dominance in the lower price range with its SU7 EV, while BYD recently announced the launch of a new all-electric pickup truck that will directly compete with Tesla’s Cybertruck.

Breaking: @Ford says it’s delaying production of its planned EV pickup and three-row utilities, plans to expand hybrid options.

-Blue Oval City pickup pushed back from late 2025 to 2026.-3-row utilities pushed back from 2025 to 2027.

— Michael Martinez (@MikeMartinez_AN) April 4, 2024

According to the saying, imitation is the sincerest form of flattery. Ford has recently downsized its plans for electric vehicles and is instead focusing on increasing its range of hybrid products. This serves as a major validation of Toyota’s approach.

$TSLA | Morgan Stanley CUTS Tesla PT to $310 from $320 and Keeps ‘Buy’ coverage, Says, ‘weaker-than-expected Q1 deliveries will find a BOTTOM by the Q2, but is a clear sign of the ongoing EV ‘shake-out’ phase.

FY’24 delivery forecast is CUT to 1.75M (down 3.3% YoY) and a…

— Wall St Engine (@wallstengine) April 4, 2024

It is possible that EVs will only become financially viable with the use of solid-state battery cells. This is evidenced by the concerns raised by even optimistic Tesla analysts, such as Morgan Stanley’s Adam Jonas, indicating that there may be challenges ahead.